The Stranding Cost of Agricultural Subsidies under Climate-Transition and Biodiversity-Regulation Risks

Résumé

Anticipated carbon pricing and biodiversity regulation turn agricultural subsidies into stranded assets. In a continuous-time model of partially irreversible capital under Poisson policy arrival, calibrated to Danish dairy, the stranding loss is strictly convex in the capital overhang. Under full pass-through of CAP support into livestock capital, Common Agricultural Policy payments amplify the loss by a factor of 13.2; at a 25% pass-through the multiplier is 1.7. A second biodiversity risk contracts the capital target by 60 percent; expected stranding losses are super-modular in the subsidy pair in the risk-neutral benchmark and satisfy the same ranking numer-ically in the calibrated HJB, so joint reform dominates staged reform. The welfare-maximising subsidy is zero once the social cost of methane exceeds e 19/tCO2e.

Mots-clés

irreversible investment; policy risk; stranded assets; carbon taxation; biodiversity regulation; subsidy design;

Codes JEL

E22: Capital • Investment • Capacity
H23: Externalities • Redistributive Effects • Environmental Taxes and Subsidies
Q18: Agricultural Policy • Food Policy
Q54: Climate • Natural Disasters • Global Warming
Q57: Ecological Economics: Ecosystem Services • Biodiversity Conservation • Bioeconomics • Industrial Ecology